Humphreys Jones Realty Limited and Browview Realty Limited v. Minister of National Revenue, [1986] 2 CTC 2429, 86 DTC 1807

Taylor, T.C.J.:—These are appeals heard on common evidence in Toronto, Ontario, on June 5, 6 and 16, 1986, in connection with a 1977 income tax assessment for Humphreys Jones Realty Limited ("Humphreys Jones’’) and 1978, 1979 and 1980 assessments for Browview Realty Limited ("Browview") resulting from the allocation by the Minister of National Revenue of the selling price of a parcel of real property in the City of Hamilton as follows:

Humphreys Jones had reported the allocation of the selling price as:

In its own relevant income tax returns Browview had treated the purchase price as:

The basic facts as noted in the Humphreys Jones reply to notice of appeal were:

On or about September 16, 1977, the Appellant agreed to sell to Ben Feldman in Trust for a company to be incorporated six apartment buildings comprising 224 suites (the ‘Buildings’) in the City of Hamilton as well as the land on which the Buildings were situated (the "Land’) for a price of $1,832,500.00. The Appellant and the purchaser of the Buildings and the Land did not in the Agreement of Purchase and Sale, allocate the purchase price as between the Buildings and the Land and have been unable to agree to such an allocation.

The relative positions of the parties regarding the proper allocation at the commencement of the hearing were:

The parties agreed that the role of the Court in this matter was to allocate the sale price in 1977 between land and buildings (there was no dispute about equipment) according to the provisions of section 68 of the Income Tax Act, as interpreted in the Supreme Court of Canada judgment in The Queen v. George Golden, Eleanor Golden, John McGuckin and Leemar Holdings Ltd., [1986] 1 C.T.C. 274; 86 D.T.C. 6138. Section 68 of the Act reads:

68. Where an amount can reasonably be regarded as being in part the consideration for the disposition of any property of a taxpayer and as being in part consideration for something else, the part of the amount that can reasonably be regarded as being the consideration for such disposition shall be deemed to be proceeds of disposition of that property irrespective of the form or legal effect of the contract or agreement; and the person to whom the property was disposed of shall be deemed to have acquired the property at the same part of that amount.

In support of its position, Humphreys Jones submitted two appraisal reports, testified to by the appraisers — Mr. B. B. Humphreys (Exhibit A-4) and Mr. W. M. Donnelly (Exhibit A-3) respectively. Each of these appraisers was qualified as an expert in the field, and it should also be noted that Mr.

B. B. Humphreys was not in any way related to the corporate appellant. Both of these reports took the approach that the method of determining the question before the Court, was to value one of the two components (land, buildings) and attribute the balance of the purchase price to the other component. Both appraisers preferred the “market data” approach in order to value the land component, as opposed to the "income” method.

For the appellant Browview, a Mr. Shannon, an appraiser with Revenue Canada was called and his report presented (Exhibit B-1). His qualifications as an "expert” were challenged by counsel for Humphreys Jones, and he was not so qualified by the Court. Further, counsel for Browview called both Mr. Morris Lax, and Mr. Victor Lieberman, two of the major investors in Browview, responsible for the purchase of the subject property.

The Minister introduced the appraisal report of Mr. Warren Sabourin (Exhibit R-6) and the report was explained and supported by its author.

All appraisal reports rejected as inappropriate under the circumstance of this appeal, the "cost” method of valuation.

From the Humphreys' appraisal the following are noted:

It should be noted that the ‘E’ zoning designation permits a density of ratio of 1 to 1.7, land to building area. Since the by-law was originally passed the permissi- ble building density has increased. The subject buildings were constructed subject to lower density provisions than are now in palce. (Emphasis mine)

As we mentioned above, the Zoning By-Law for 'E' zoning was amended prior to 1971. The amendment increased the floor area ration to 1.70 and the height limitation was removed by the parking requirements were increased from 1.00 to 1.25 spaces per unit. This change in the By-Law has a considerable affect (sic) on the subject site as of the September 16, 1977 effective date of our valuation. For example, the 4 acres or 174,240 square foot site is changed to the following calcula- tions:

Density Factor	1.70
Permissible Floor Area (gross)	296,208
Number of Units (permissible)	370
Land Area per unit	471
Parking Requirement	463

The 370 units calculation is based upon 800 square feet per apartment unit . . .

General

The principle of the “Highest and Best Use” of a property is fundamental to the concept of market value. This principle has traditionally been defined as:

. . . The Highest and Best Use of a property is that use which may reasonably be expected to produce the greatest net return over a given period of time. (Emphasis mine)

This definition of the concept was confirmed in “Turner vs. The City of Winnipeg” (4, L.C.R.).

In analyzing such ‘Highest and Best Use’ of a property due consideration must be given to the existing or reasonably anticipated demand for such use, the physical and geographical suitability for such use and finally whether or not such use is permissible under existing or reasonably anticipated legislation.

It is our opinion that the property could be improved with additional units, up to the maximum permitted by the By-Law. In essence, a potential purchaser would be purchasing land attributable to the existing units and the potential for additional units.

In order to cofirm this conclusion we have completed a land residual analysis on the property. The land residual examines the net income of the property less the amount of annual income attributable to the recapture of the building cost and a return on the buildings. The remaining amount is then capitalized at current rates thereby providing an indication of the land value.”

The adjustments made to the various sales are summarized in the following table.

Sale		Price Per	Density	Adjusted to	Adj. For
Number Address		Sq. Ft.	Factor	"E' Zone	Location
1	75 Queen North	$ 9.95	1.7	$ 9.95	$ 7.96
2	181-183 John St.	10.56	2.55	7.04	5.63
3	111 Market St.	10.60	2.04	8.83	7.06
4	Duke Street	12.25	1.7	12.25	9.80
5	125 Wellington
	St. N.	11.82	2.55	7.88	6.30

Based on the foregoing sales and analysis, it is our opinion that the market value of the subject site, as at September 16, 1977 is $6.00 per square foot. Since the subject site contains an area of 174,240 square feet, the total value is:

$1,045,440

In order to verify the value arrived at through the square foot method, we also considered the property on a price per suite basis.

The sales indicated a range of between $3,316 and $5,678 per potential suite. Based on actual suites, the price per suite ranged between $2,500 and $5,488. The higher price per unit was for a building which had less units than the calculated potential since it featured large units. The remaining sales which were built on indicate prices of $2,628 and $3,321 per unit.

It is our opinion that it would be improper to use the price per suite derived by using the actual number of units built, since it is difficult to know how many can actually be built on the subject site. The number of units built is usually a matter of negotiation between the City and the developer. Using the price per potential suites, however, seems equitable since the subject and the comparable sales are being compared on an equal basis.

As mentioned the sales which were used are located in the downtown portion of the City and were felt to have a better location. It is our opinion that a factor of 20% seems reasonable to reflect this factor. This reduces the range of values to between $2,653 and $4,542 per potential unit.

Sale		Potential	Price Per	Adjusted For
Number Address		Suites	Potential Unit	Location
1	75 Queen North	192	$4,687	$3,750
2	181-183 John St.	294	3,316	2,653
3	111 Market Street	65	4,153	3,322
4	Duke Street	28	5,678	4,542
5	125 Wellington
	St. N.	243	3,704	2,963

Based on the size, shape and location of the subject site, it is our opinion that the market value of the subject site as at September 16, 1977 is $2,700 per potential unit for 370 potential units $999,000.

The two methods indicated values of $1,045,440 and $999,000 respectively. Both indicate similar values and tend to substantiate each other. As a result of the foregoing, it is our opinion that the market value of the subject site, as at September 16, 1977, is:

$1,000,000

The above market value of $1,000,000 takes into account a cost of about $48,000 to demolish buildings 1, 2, 3 and 4.”

From the Donnelly appraisal report, ! would note as the parameters for such valuation:

Method of Valuation — Comparative Market Data

— Income Capitalization

Highest & Most Productive Use For Land

Development to full development density of 296,208 s.f., as permitted under zoning regulations to a total of approximately 304 apartment units by demolition of one existing 30-unit walk-up building and construction of new 110 unit, 12 storey building.

Highest and Most Productive Use for Land

It is a basic axiom in the appraisal of real estate that land shall be valued in its highest and most productive use at the effective date of appraisal. This is the use which fully develops the land to its highest value within the limitations of zoning and building regulations, available services, etc., and with proper considerations for the general market conditions and other economic factors. [Emphasis mine.]

While in actual practice it may not be necessary to provide separate values for land, it is often desirable to do so for the reasons mentioned above. Furthermore the site is fixed and everlasting, while buildings and other improvements are subject to deterioration, functional and economic obsolescence. The degree of economic obsolescence. The degree of economic obsolescence in the existing buildings may be ascertained by the use of site valuation. Theoretically, the residual value of the buildings will be the difference between the value of the whole property, based upon the income produced by the present combination of land and buildings, and the value of the land, fully developed for its highest and best use.

Furthermore, land value is not changed because of a building improvement. The value of land as a vacant lot would not be impaired if the improvement were removed or destroyed. Therefore, any shrinkage in the value of the land and building considered as a property, or a unit, must be seen as a shrinkage in the value of the building. [Emphasis mine.]

The value of the subject land is based on a full permissible development of the site to a gross floor area of 296,208 square feet or approximately 304 apartment suites, i.e. to its highest and most productive permissible use, rather than its present use of 224 units with approximately 238,090 square feet of floor area. The reasons are as previously outlined.

While it is quite apparent that the site is presently underdeveloped, it is also quite obvious that to bring it to the stage of full development, it would be necessary to demolish one of the existing buildings. There is no available space to erect a new building in addition to the six structures already located on the land . . .

The analysis further indicates that by 1974, site values had increased further and from 1975 to 1977, ‘E’ zoned properties were in the range of $4.50 to $6.00 per s.f.

. . . It is further concluded that the site value at the date of sale, September 16, 1977, is $4.50 per square foot.

As of September 16, 1977

174,240 s.f. at $4.50 (rounded) $784,000.

It did not appear to me that Mr. Donnely “checked” the results of the “per square foot of land” approach (supra), by some calculations relating to the “per suite” approach although counsel for the respondent did submit an earlier appraisal report (Exhibit R-5) — upon which the appellant Humphreys Jones did not rely — which showed that such an effort had been made, and then apparently abandoned by Mr. Donnelly.

With regard to the Sabourin report (supra), the main features are, first a reliance on the “per suite” basis of valuation, and second an allowance for the prospect of “further density development”. Mr. Sabourin provided a more detailed rationale and calculation for the “further density development” factor, basing it on the present value of a development which he estimated could occur in 15 years from the year in question, which would take it to the year 1992. I quote from that report:

The question that is raised is; does the highest and best use pertain to the subject site as if vacant or unimproved or does the problem call for estimating the highest and best use of the property as it is presently developed?

Directives issued to appraisers normally command that a parcel of land be viewed as vacant and unimproved and that the site be valued according to its highest and best use. If the site to be valued is presently vacant, then the task is defined to the extent that consideration need only be given to the factors which govern the determination of highest and best use.

Once a site has been improved with permanent structures, the concept of highest and best use takes on an entirely different perspective, for the buildings become wedded to the land until such times as they are razed or expire through natural causes. The land, together with the improvements, becomes a singular productive entity and as such, the question of highest and best use should relate to the most optimum use which can be made of the package.

Under the heading of “Site Analysis”, it was stated that the existing zoning permitted a lot coverage of 1.70. The fact of the matter is that the existing improvements reflect an underimprovement for the subject site. Logically, it would be the four walk-up apartments that create this circumstance since they were erected when the density factor was 1.286.

The sales data on the following 7 pages clearly demonstrates that walk-up apartment buildings of similar age and amenities recommend a price per suite in excess of land value per suite either for existing number of suites or the maximum number of suites that are permissible under the “E” Zoning. (see land valuation section)

In other words, market evidence indicates that the value of land has not exceeded the value of land and buildings for the subject walk-up apartment buildings.

Based on the fact that the subject walk-up apartment buildings are producing income, are in good to average physical condition and market evidence suggesting that these buildings do have an inherent value; it is this writer’s opinion that the highest and best use of the subject property is the existing use as developed at least for the foreseeable future. However, an apparent benefit is inherent in that once the walk-up apartment buildings have terminated their economic lives, more apartment suites can be developed than presently exists.

The only logical unit of land value measurement would be on a price per unit basis since this is a function of economics relating to ultimate development and automatically accounts for any physical dissimilarities.

The following calculations reflect the maximum number of units that could be developed.

Subject land: 174,152.88 square feet (3.998 acres)

Density factor: 1.70

Gross building area allowed: 174,152.88 x 1.70 = 296,059.90 sq. ft.

296,059.90 square feet @ 60% + 700 sq. ft. = 254 one-bedroom units 296,059.90 square feet @ 40% + 900 sq. ft. = 132 two-bedroom units

Total number of units:	386
Actual number of units:	224
Total number of deferred units	162

Since the shortfall of approximately 162 units would not be realized until the end of the economic lives of the walk-up apartments which in turn is estimated to be 15 years, the value of this benefit has to be discounted accordingly.

The discount rate applicable at the date of appraisal is associated with conventional mortgage lending rates for apartments and townhouses. These rates were in the range of 10 /2% and merely reflect the risk lending policies of financial institutions for similar types of development. Nonetheless, these lending rates are the best evidence available for the determination of a reasonable discount rate.

Valuation of land based on existing suites:

224 units @ $2,800 per unit:		$627,200
Valuation of deferred units discounted at 10 /2%
for 15 years:
162 @ $2,800 x 0.2236484176 =		101,447
Total value estimate of subject land		$728,647
rounded $729,000.00
Allocation at September 16, 1977
Land	$ 729,000
Building	1,081,100
Disposition Price	$1,810,100

With regard to Mr. Shannon's report, within reasonable limits he followed the same basic approach (per suite) as used by Mr. Sabourin, but disregarded any allowance for “deferred units", as Mr. Sabourin called them. Mr. Shannon contended that the value of the land as at disposition date was $604,800. The “per suite" value attributed to land by Mr. Shannon was $2,700 ($2,700.00 x 224 units $604,800). In a letter accompanying his report, Mr. Shannon noted:

It is our opinion that the land must be valued on the basis of the highest and best use of the site, which we consider to be the existing use and improvements.

There is no indication, in our analysis of the income and operating expenses, that the smaller units are contributing less to the property than the bare land value, less demolition costs on a projected higher use, i.e 329 units.

The two individuals, Mr. Morris and Mr. Lieberman responsible for the purchase of the subject property, testified that their concern was with the “income stream” only — they were knowledgeable in the real estate field, wanted to make 10 per cent on their investment, and would only pay for the property an amount which would make that return. No thought had been given to additional rental units, either at that time of purchase or since that time. Nothing in the way of further rental units had developed on the project and none is planned.

Analysis

The relevant jurisprudence points out that the word “reasonably” from section 68 of the Act (“. . . can reasonably be regarded as being the consideration for such disposition . ..") is not necessarily synonymous with “fair market value", and reference could be made to Herb Payne Transport Limited v. M.N.R., [1963] C.T.C. 116; 63 D.T.C. 1075 (Ex. Ct.). To make this con- nection from the basic appraisal reports representing essentially “fair market value", counsel for the appellant Humphreys Jones stated in argument:

It is submitted that the value of the land on September 16, 1977 was $1 million if it were vacant. It is conceded that it would probably have been unreasonable to tear down the entire buildings and redevelop the entire property immediately. It would, however, have been reasonable to have carried out a study, similar to the one carried out by Mr. Donnelly, to find that one or more of the buildings could have been torn down or razed and the total number of units could have been increased.

Mr. Humphreys was not asked to perform a feasibility study, but he is very experienced in the area, and he concluded that it would be rational to redevelop the property in some manner immediately to take advantage of the underutilization. He then valued the property on the basis that a potential purchaser would be buying the land for the existing units and the potential additional units.

There is nothing more reasonable than maximizing the return of one’s investment, and this would occur with an immediate redevelopment of the property, but not a wholesale redevelopment of the property. It is submitted that it is reasonable to conclude that the package of land and buildings would have been worth more than $1,810,000.00 if there had been full utilization of the land. As stated by, I believe, Mr. Donnelly, Mr. Humphreys, and Mr. Sabourin, the land cannot shrink in value and the components of the package which take away from the maximum value are the buildings. The buildings were worth approximately $80,000.00. In fact, Mr. Sabourin’s approach has put even greater blame to the buildings. If a reasonable approach can be taken to redevelop the property, as the case here, or the possible redevelopment, then that is because the land underneath the walk-ups were perhaps worth more than the combination of the walkups and the land, then it is reasonable to view the maximum value for the land as if it is vacant. Such matters were taken into account in the expert evidence of Mr. Donnelly and Mr. Humphreys.

From his perspective, counsel for Browview asserted:

The vital point that I wish to stand upon, Your Honour, is that appraisal evidence cannot be used in a proceeding of this kind in order to displace what the parties’ intentions were to invite the Court to make an allocation based on something other than the parties, and in this case in particular, the purchaser’s intention with respect to the use of the land. My submission is that in this case the appraisal evidence is useful once you take as a given, as I think you must on the evidence, what the purchaser’s intention was, but the appraisal evidence cannot be used, as my friend wishes to use it, in order to overcome that intention and suggest that some allocation based on what I suggest are theoretical accounting principles and not the actual facts of the case should determine.

What is reasonable is the same as what the parties would have determined in this case had they turned their minds to it . . .

In putting forward the case for the Minister, counsel commented:

I would submit that there are three factors that stand out in determining what this Court should look at in arriving at its decision. Firstly, a Court should look at the transaction from the point of view of the purchaser and the vendor and should examine all of the surrounding relevant circumstances. Secondly, the fair market value of land alone and of the depreciable assets alone, although a relevant factor, are not determinative. It is merely one factor that a Court should take into consideration. It should not be overly stressed or overly emphasized. Thirdly (and this is less a point under which facts can be mentioned, but rather, is the approach that should be taken by a Court in looking at those two factors) the Court should bear in mind that the inquiry is not one as to reasonable value, but rather as to the reasonable allocation of proceeds of disposition. That is a point which is made by the Chief Justice.

In my view, both the Humphreys and Donnelly appraisal reports fall far short of providing a convincing rationale for the common basis of the reports — comparative sales data plus an allowance for immediate increased density development of the site. That proposition seems to be founded on the assumption that a purchaser acquiring a real property which was not at that time developed to the fullest zoning and density permitted, would make a substantial allowance in a purchase offer for this "undeveloped” portion, without knowing if indeed such added development were possible, practical or economical — perhaps even more to the point, if there was any real demand for the additional development at that date. These reports, in their basic premise, attempt to impose on the mind of a purchaser the more optimistic view probably held by a seller — a practice which to me stretches valuation and appraisal standards and guidelines a great deal.

As I view the situation, at the date of the transaction — September 16, 1977 — both purchaser and vendor, being experienced in the local real estate field, recognized that the property at that date held no immediate prospect of further development to produce additional rental units from higher density use of the land. At the time of sale the vendor, but not necessarily the purchaser, was aware that a higher density zoning was in effect for the property. But there is no evidence that even the vendors considered such a prospect (increased development and construction with a view to increased revenue) as either economical or practical at that time; or that this was an alternative to selling the property for its existing economic value. There is then the testimony of the purchasers that it was not considered at all by them.

As I see it, in a usual set of circumstances, while any prospective tenant would take into account the land, environment and general surroundings of an apartment building as it might contribute to his happiness and enjoyment in a specific apartment unit, it would be the apartment unit itself which would be the main attraction for him in deciding to rent at a certain location. I can only conclude that when the purchaser of this property looked at it with regrd to its potential “income stream”, in his mind he was also placing considerably greater emphasis on what a prospective tenant would think of the apartment building in relation to its surrounding land, rather than the surrounding land in relation to the apartment building. This leads me to the conclusion that for the appellants, the land itself as then developed, was being used at that time to its highest and best use. That would suggest, as I see it, that the “per suite” basis for the purchase, and therefore any appraisal based on that view, would be more viable than a “per square foot of land density” basis of appraisal, to whatever degree the appraisal reports can be of assistance to the Court in a matter of this kind. The “per suite” basis is at least consistent with the expressed view of the purchaser at acquisition (acquisition price based on “income stream”), and it was acknowledged by the vendors in testimony that consideration of the “income stream” would almost always be one factor in any such purchase. It is my conclusion that an appraisal report in the circumstances of this appeal, based on such a proposition — a major factor being virtually immediate further density development — cannot be seriously considered as a basis for valuation. If that consideration was an identifiable major factor in a purchase, it is possible that the approach used in the Humphreys and Donnelly appraisals would be viable — but the importance of such a factor should not be attributed by the vendor to the purchaser without clear support. That does substantial fundamental damage to both the Humphreys and Donnelly reports (supra), and as I shall note later some damage to the respondent's report, that of Mr. Sabourin — submitted as Exhibit R-6.

In addition to this very important, but misplaced reliance on “land density and zoning” in the two reports (Humphreys' and Donnelly’s), that of Mr. Humphreys had the additional weakness that a major point in his deciding to use this “anticipated future development” factor was noted as:

It should be noted that the “E” zoning designation permits a density of ratio of 1 to 1.7, land to building area. Since the by-law was originally passed the permissible building density has increased. The subject buildings were constructed subject to lower density provisions than are now in place. [Emphasis mine.]

There was no support provided for the view that the density ratio had increased subsequent to the construction of the subject buildings, and it would appear from the available testimony that at least some of the buildings were constructed under the same density provisions that existed at the date of sale in 1977.

For purposes of this appeal, therefore, no value can be attributed to the Humphreys' report, and its $1 million amount. With regard to the Donnelly report, because of its major flaw — unfounded reliance on the “additional density” factor — its valuation of $784,000 must be treated with considerable skepticism, without support from other independent information, even though it was used by Humphreys Jones in the preparation of its income tax return.

The appraisal report of Mr. Sabourin was prepared in 1983. To the degree it relied upon the “further density increase” factor, he must have intended that it should reflect the thinking of the purchaser in 1977. That retrospective view from the appraiser, in the circumstances of this case, may be acceptable, but I believe it is equally valid for the Court to say that now, in 1986, there is still no indication of additional development on the site, and since none is planned, Mr. Sabourin’s “fifteen year” time frame proposition should be regarded with the same skepticism given to the Humphreys and Donnelly reports (supra). That seriously clouds his use of the additional $101,447 amount (supra) to reflect that aspect, and should leave his report resting on the amount of $627,200 — representing 224 units with a land component value of $2,800 per unit.

Mr. Shannon’s report, of course, represents not only the Minister’s assessment, but also the basis in this appeal — $624,800 — relied upon by Browview, and I shall comment further on it at a later point in this decision.

In summary, therefore, the appraisal report of Mr. Humphreys does not serve to support the $1 million valuation now contended by the appellant Humphreys Jones, at the hearing, and the appraisal report of Mr. Donnelly does not support the amount used in filing the tax returns of Humphreys Jones — $784,000. Since I can think of no real reason to include the “deferred units” factor, even on the modified basis suggested by Mr. Sabourin, there remain the two reports of Sabourin at $627,200 and Shannon at $604,800. I quote from the argument of counsel for the repondent:

On the evidence before Your Honour, I suggest that the report prepared by Mr. Sabourin, and I will go so far as to say Mr. Shannon, dealt with the facts more realistically than Mr. Donnelly and Mr. Humphreys. The difference between the two is that Mr. Shannon takes the position that there was no redevelopment in the foreseeable future and Mr. Sabourin says, yes, there is some potential here and that potential must be given a value. In my opinion, Mr. Sabourin says, that potential is to be valued at “K” dollars and that is what he calculates based on fifteen years.

The position that I have taken is that we have the reassessment which is supported by Mr. Shannon and we have an appraisal which was given to this Court. The position I have taken is that we have supported the reassessment; however, we have adduced evidence which is also different, but on the basis of all the evidence that has been adduced before Your Honour, it is quite open, I would submit, to Your Honour to support the reassessment as it has been made. That is the position which I adopt.

Both the report and the testimony of Mr. Shannon, were concise, and professional, and quite possibly some of the most useful information provided at the hearing. Nevertheless I am prepared to determine that the amount which can reasonably be regarded as the consideration for the disposition of the land in 1977 was $627,200. This is supported by the calculations in Mr. Sabourin’s report, based on a “per suite" comparison of land values. The “per suite" basis is consistent with the testimony of Mr. Lax and Mr. Lieberman, a major factor to be taken into account. The “‘reasonable”’ value inherent in this situation should be calculated by recognizing that the purchasers were interested in investment, not development, at that time and this was done by both Sabourin and Shannon. I see little to choose between Mr. Sabourin's $2,800 per suite values and Mr. Shannon's $2,700 per suite amount, — they are relatively close and based on reasonable assumptions and comparisons. Finally, it was the Minister who brought forward Mr. Sabourin and his report and therefore, at least by implication, was prepared to agree the valuation could be $627,200, rather than $604,800, a small change though it is. It is just as reasonable for the Court to adopt that position, once all the evidence has been prepared.

This leaves open the question of costs, and I quote from comments from counsel on that subject:

Counsel for the Minister:

Before asking Your honour if he has any questions and sitting down, I have one more comment with respect to costs. As Your Honour is aware, costs in this Court are only awarded against the Crown. I would submit that because of the exceptional circumstances of this case, i.e. the reason the Crown is here today is because the vendor and the purchaser did not negotiate and did not allocate any amount as to depreciable property and land, had these parties been able to agree, and they are arm’s length and we know what the decision in Golden is, we would not have been here before Your Homour. If I may say (and I am probably giving evidence) even before the Supreme Court of Canada decision came down, if the parties had agreed we would not have been here in any event. So, on that basis, I submit that there ought not to be any costs awarded in this decision. The Crown finds itself in the position of being dragged in here because of the purchaser and vendor being unable to agree. It is true, the Minister did take a position, but the Minister had no alternative but to take a position in view of the wide figures that were being used by the vendor and the purchaser respectively.

Counsel for Humphreys Jones:

With respect to the costs issue that Mr. Malette has referred to, I will point out again that even if there had been an agreement by the parties, there was an agreement in the Golden case and they ended up going to the Supreme Court of Canada, so how my friend Mr. Malette can say that it was the inability of the parties to agree that brought them to the Court, it was the assessment that brought both parties to Court (the Confirmation of the assessment, more accurately) by putting in the value of $604,800.00. It is submitted that it is not the inability of the purchaser and the vendor to agree on the allocation which led to us being here . ..

Counsel for Browview:

Just on the question of costs, Your Honour, I endorse what Mr. Miller said. We are here because the Crown was not prepared to accept either position put forward by either Mr. Miller's or my client. We are here to thrash it out, although I do point out that we have accepted the position set forth in the Crown's reassessment, the $604,800.00. We were prepared to agree with the position the Crown took initially. The Crown is now taking a different position today .. .”

The essence of a hearing on an income tax appeal, is for the appellant (or appellants) to show that the assessment struck by the Minister is in error. That may be seen here at least to the degree that when called upon to support his assessment, the Minister produced evidence and testimony in support of a different valuation amount. That is not fatal, but is at least indicative. It could be argued that the result might have been different, if the Minister had chosen to rest on the report of Mr. Shannon — but that the Minister chose not to do. After hearing the evidence and testimony from all parties, the Court has concluded that the valuation presented by the Minister at the hearing in large measure is reasonable when considered together with the other relevant information, but deleting any portion thereof attributed to “deferred units”. Accordingly the parties have been successful in launching these appeals, — the Minister's assessments have been overturned. I recognize that one might argue that Humphreys Jones and Browview have been only moderately successful, but as I see it, the joint efforts of both appellants were called upon to produce the “reasonable" determination accepted by the Court. Costs will be awarded to both appellants on a party and party basis.

The appeal is allowed in order that the consideration for the disposition of the subject property shall be determined as:

Costs are to be awarded to both appellants on a party and party basis.

Appeal allowed.